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LaRouche was Right
About D.C. Hospital
Shutdown Scandal

Health Care Privatization Scheme
Collapses in D.C

by Edward Spannaus

NCFE: Death-Dealing Side of the Bubble
by John Hoefle

Both articles were published in the Nov. 29, 2002 issue of the Executive Intelligence Review.

To DC Hospital Page

Privatization Scheme Collapses in D.C.

by Edward Spannaus

The privatization scheme for Washington, D.C.'s public health-care system, which was rammed through in a corrupt deal last year—and which the U.S. Congress refused to reverse, even though it had the power and the duty to do so—has now entered into a process of rapid and terminal collapse.

LaRouche representative Lynne Speed (left) exposed the corruption of National Century Financial Enterprises and Doctors Community Healthcare Corporation, at a May 8, 2001 press conference in Washington D.C. She is joined here with PA State Representative Harold James.

The centerpiece of the privatization scheme, Greater Southeast Community Hospital, is in bankruptcy and is operating "day-to-day" on a drastically reduced level, as a result of the Chapter 11 bankruptcy filing on Nov. 20 by its owner, the Arizona-based Doctors Community Healthcare Corporation. DCHC's filing followed by two days the bankruptcy of its financial partner, National Century Financial Enterprises (NCFE), which itself filed Chapter 11 on Nov. 18, after FBI agents spent the weekend executing a search warrant in its Ohio headquarters.

All of this was foreseen and forecast a year and one-half ago, by the LaRouche movement, which organized the mass opposition to the shutdown of D.C. General Hospital, and exposed the dirty record of DCHC and NCFE. EIR reported that what DCHC and NCFE specialize in, "is extracting loot from hospitals and health-care institutions upon which the lives and well-being of thousands of patients and citizens depend."

Even though this was all known, the corrupt deal was forced through by Wall Street's Financial Control Board, which oversaw the city's finances, and Democratic Leadership Council (DLC) darling Mayor Anthony Williams. After the takeover of the Senate by John McCain (R-Ariz.) and Joe Lieberman (D-Conn.), the DLC gang prevented any consideration of the matter in Congress, with D.C.'s Congressional Delegate Eleanor Holmes Norton ordering Congress to stay out, because it was a "home rule" issue.

Greater Southeast's Failure

Not only was DCHC's Greater Southeast supposed to "replace" the services provided by the top-rated D.C. General Hospital—which it could never do—but it was also the centerpiece of the so-called k, which was supposed to function like an HMO for poor residents of the District.

Greater Southeast never provided anywhere near the level of services of D.C. General. Under the privatization contract rammed through by the Mayor and the Financial Control Board, it was supposed to create its own Level I Trauma Center, to replace that which was shut down at D.C. General; it never even tried.

Last Spring, Greater Southeast was downgraded by the national agency responsible for accrediting health-care institutions, after an inspection found numerous safety and health violations. Greater Southeast was then notified by the Center for Medicare and Medicaid Services that its ability to obtain reimbursements from the Federal government was in jeopardy because of this. Ironically, the re-inspection is scheduled to take place during the Thanksgiving week of Nov. 25—at a point where the hospital cannot even provide sufficient nurses and doctors to serve its dwindling number of patients.

Greater Southeast's emergency room has been closed for much of the week of Nov. 18, its pediatrics unit has been closed, and three nursing units have been consolidated into one. The CEO of Greater Southeast has said publicly, that the hospital is operating "day-to-day," and that if it cannot meet payroll, it will close.

The near-closing of Greater Southeast has again thrown the District's emergency medical services into a crisis—as occurred after the shutdown of D.C. General in the Summer of 1991. Greater Southeast staffs its emergency room with contract physicians from PhyAmerica—which has also gone into bankruptcy because of non-payment from National Century. Howard University Hospital, the only other hospital in the eastern half of the city, is diverting ambulances from its emergency room due to overcrowding. Washington Hospital Center has announced that it will not accept any more non-emergency patients, because of lack of payment from Greater Southeast.

According to Sister Carol Keehan, the CEO of Providence Hospital, Greater Southeast Hospital's emergency department and the emergency department at D.C. General, serve 6,000 patients a month.

City Council members are enraged and pointing to their unanimous opposition to the privatization scheme last year. Councilman David Catania, who had published a dossier on DCHC and NCFE, said that "the Control Board and the Mayor's office didn't listen when we told them this would happen."

"I'm sick," said Council member Sandy Allen, who sponsored many hearings on D.C. General and the privatization plan last year.

The fallout from the National Century collapse is being felt all over the country. At least four other health-care providers have also gone into bankruptcy, including PhyAmerica, which provides emergency-room doctors for over 200 hospitals; the Tender Loving Care unit of Med Diversified, which provides home-care services to over 60,000 patients; and Lincoln Hospital Medical in Los Angeles.

Hundreds of other clients of National Century—which built its operation around lending against the accounts receivable of health-care providers—are also endangered. Many operate in the nation's poorest communities. "This is a knife in the heart of those institutions," a spokesman for the American Hospital Association said, noting that many of these facilities were already on the verge of collapse.

NCFE: Death-Dealing Side of the Bubble

by John Hoefle

Lyndon LaRouche has long maintained that it is not just the collapse of the world's largest financial bubble that is deadly. Attempting to maintain that bubble is measured in lives wasted, destroyed, and lost. The bankruptcy of, and mushrooming scandal around, National Century Financial Enterprises (NCFE), provides an insight into how this destructive process works, and illustrates the consequences of failing to re-regulate industry and infrastructure, to stop such abuses.

In the aftermath of the near-meltdown of the global financial system in September 1998, the world's major central banks, led by the Federal Reserve, printed and unleashed what speculator/drug-pusher George Soros blithely called a "wall of money," in a desperate attempt to stave off a total blowout. Part of these "walls of money" pumped into the banking systems was used to carve out wider channels for existing income streams to flow into the banks' pockets. Some of these measures were legal; others were allowed only because Congress had legalized them by systematically dismantling existing protections; and some were illegal even in a fraud-friendly environment. The post-1998 policy was, in effect, to beg, borrow, or steal anything that could be stolen, and throw it into the bubble.

It is this combination of monetary policy, deregulation and financial asset-grabbing which created the dot.com bubble, the related telecom bubble, and the Enron/energy pirates' Wall Street bubble; all of which have subsequently exploded and are now revealed to be what LaRouche had said they were—scams. Now, with the bankruptcy of NCFE, another aspect of this post-1998 looting comes out of the shadows and into the light.

The Asset-Backed Securities Danger

NCFE was basically a financial "factor," advancing cash to hospitals, physicians, and other health-care facilities in exchange for their receivables—the delayed payments made by insurance companies and government agencies for patients' treatment. NCFE would place these receivables into pools, then issue derivative securities—known as asset-backed securities—backed by the expected insurance payments.

When Federal Reserve Chairman Sir Alan Greenspan talks about how the derivatives market has saved the financial system by spreading the risk, one of the elements he has in mind, no doubt, is the asset-backed securities market, which has doubled in size since 1998. As of the second quarter of 2002, there were $1.4 trillion in asset-backed securities outstanding, according to the Bond Market Association. Of this amount, $394 billion—28% of the total—were securities backed by credit-card payments; $234 billion—17%—were backed by home equity payments; and $205 billion—14%—were backed by auto-loan payments.

Asset-backed securities account for only 7% of the $20 trillion U.S. bond market, falling well short of the $4.5 trillion in mortgage-related bonds, or the $4 trillion in corporate bonds, but they play an important role in what is politely called "risk management." Commercial banks have been quite active in recent years, converting their credit-card and other loans into asset-backed securities, which are then sold primarily to institutional investors. The effect is to take the loans off the banks' books, shifting the risk of non-payment of the loans from the banks, to the owners of the securities. In these days of soaring debts and a shrinking economy, such a method for shifting losses from banks to pension, mutual, and other publicly owned funds is no small consideration for a financier.

The Squeeze

NCFE was basically in the business of loaning hospitals, nursing homes, and other medical facilities money to get them through the period between when they provide a service and when they get reimbursed for that service by the relevant insurance company or government agency. The more slowly they received their payments, the weaker their financial condition; since the health maintenance organizations were notorious for delaying reimbursements, the HMOs created the opening for NCFE (and others, though NCFE was the largest player in the field) to step in and fill the gap. For a fee, of course. Caught in this squeeze, more than 100 clients signed up for NCFE's services, with the company buying $15 billion in receivables and issuing $6 billion in asset-backed securities since its founding in 1991.

As a private company not required to make public filings with the Securities and Exchange Commission, much about NCFE remains shrouded in secrecy. But one can tell a lot by looking at its board, which consisted of four of the company's founders and two executives of J.P. Morgan Chase, which controls 16% of the company through its Beacon Group III private equity fund. In addition, Morgan Chase and Bank One are trustees for NCFE's bond trusts. The bonds themselves were underwritten by Crédit Suisse First Boston, the investment banking arm of Switzerland's Crédit Suisse banking/insurance giant. The top purchasers of the bonds included PIMCO, the world's largest bond fund and a subsidiary of insurer Allianz, the world's third-largest financial institution; Alliance Capital Management, an arm of French insurance giant Axa; and ING, the Dutch insurance/banking conglomerate.

All in all, NCFE appears to fit the profile of a looting operation, whose existence served mainly to divert a portion of the health-care income stream into the pockets of some of the biggest financial institutions in the world. Now it has collapsed, leaving a bankruptcy wave which is now spreading among medical providers, with disastrous consequences for the health-care system and its patients.

To DC Hospital Page


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